Quarterly Banking Profile Third Quarter 2010

1 fdic Qu a r t e r l y 1 2010 , Vo l u m e 4, No. 4 Quarterly Banking Profile Third Quarter 2010 Net Income Continues to ImproveResilient revenues and improving asset quality remained a positive combination for insured institution earnings in the Third Quarter . Net income for the 7,760 insured commercial banks and savings institutions reporting Quarterly financial results totaled $ billion, a considerable improvement over the $2 billion reported a year ago. Third Quarter net income was below the $ billion and $ billion reported in the first and second quarters of this year, respectively, but the shortfall was attributable to a $ billion Quarterly net loss at one large institution that had a $ billion charge for goodwill impairment.

2 Absent this loss, Third Quarter earnings would have represented a three-year high. Almost two out of every three insti-tutions ( percent) reported higher net income than a year earlier, and fewer than one in five ( percent) was unprofitable. This is the lowest percentage of unprofitable institutions since second Quarter 2008. A year ago, more than 27 percent of all institutions reported negative net Provisions Are Lowest Since 2007 Provisions for loan losses totaled $ billion, the lowest Quarterly amount since fourth Quarter 2007 and $28 billion ( percent) less than insured institutions set aside a year earlier. Other contributions to the year-over-year improvement in earnings came from net interest income, which increased by $ billion ( percent), and realized gains on securities and other assets, which totaled $ billion in the Quarter , a $ billion improvement over the $ billion in real-ized losses reported a year earlier.

3 The improvement in net income was limited by higher noninterest expenses, which were $ billion (16 percent) more than a year earlier and included the large goodwill impairment charge. Increased income taxes (up $ billion) also reduced reported earnings, as did lower noninterest income, which was $ billion ( percent) below the level of a year ago. The year-over-year decline in nonin-terest income was led by a $ billion reduction in servicing fee income, a $ billion decline in service Year-Over-Year Earnings Improve for Fifth Consecutive Quarter Net Income Totals $ Billion, Up from $2 Billion a Year Earlier Lower Loan-Loss Provisions Remain Key to Earnings Gains Asset Quality Trends Continued to Improve Industry Assets Increase by $163 BillionINSURED INSTITUTION PERFORMANCEE arnings Had Strong Year-Over-Year ImprovementSecurities and Other Gains/Losses.

4 NetNet Operating 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 Billions of DollarsChart 1 Chart 2 Provisions Were $28 Billion Lower than a Year AgoYear-Over-Year Change in Quarterly Earnings(Billions of Dollars)Positive FactorsNegative Factors50454035302520151050$ $ $ $ $ $ in Income TaxesIncrease in NetInterest IncomeIncrease in RealizedGains on Securities Increase in Noninterest ExpenseDecline inNoninterest IncomeDecline in LoanLoss ProvisionsFDIC Qu a r t e r l y 2 2010 , Vo l u m e 4, No. 4 Chart 4 Community Bank Margins Continue to ImproveAssets < $1 BillionAssets > $1 Net Interest Margin(Percent) on deposit accounts, a $ billion drop in trading revenue, and a $1 billion decline in securitiza-tion income.

5 Much of the year-over-year increase in net interest income and the declines in servicing and secu-ritization income reflect the effect of new accounting rules on financial reporting that became effective in Quarterly earnings have improved year-over-year in each of the past five quarters. Loss provisions have declined year-over-year in each of the past four Are Lower in Most Loan CategoriesFor the second Quarter in a row, net charge-offs (NCOs) were lower than in both the previous Quarter and the year-earlier Quarter . Third Quarter NCOs totaled $ billion, compared to $ billion in the second Quarter and $ billion in the Third Quarter of 2009.

6 Prior to the past two quarters of improvement, Quarterly NCOs had increased year-over-year for 13 consecutive quarters. NCOs for most major loan cate-gories declined year-over-year in the Third Quarter . Commercial and industrial (C&I) loan NCOs were $ billion ( percent) lower than a year earlier, while one-to-four family residential mortgage loan NCOs were $ billion ( percent) less. Real estate construction and development (C&D) loan NCOs were down by $ billion ( percent), and NCOs of non-credit card consumer loans were $ billion 1 See FASB Statements 166 & 177 in Notes to Users.( percent) lower. Among the loan categories with year-over-year increases in NCOs, credit card NCOs were up by $ billion ( percent), as a result of the application of FASB 166 and 167, while NCOs of real estate loans secured by nonfarm nonresidential proper-ties were $ billion ( percent) Loan Balances DeclineThe amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) fell for a second consecutive Quarter .

7 Noncurrent balances declined by $ billion ( percent) in the Third quar-ter, after an $ billion ( percent) decline in the second Quarter . Before these two Quarterly declines, the industry s noncurrent loan balances had risen for 16 consecutive quarters. As was the case with NCOs, noncurrent balances for most major loan categories declined. The largest declines occurred in C&D loans (down $ billion, or percent in the Quarter ), credit cards (down $2 billion, or percent), one-to-four family residential mortgages (down $ billion, or percent), and C&I loans (down $ billion, or percent). Noncurrent balances increased in multifamily residential real estate loans (up $ billion, or percent) and in nonfarm nonresidential real estate loans (up $604 million, or percent).

8 2 3 Loss Provisions Account for a Falling Shareof Industry RevenueBillions of Dollars020406080100120140160180 Quarterly Loan-LossProvisionQuarterly Net Operating Revenue*200520062007200820092010* Net operating revenue = net interest income + noninterest income1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 fdic Qu a r t e r l y 3 2010 , Vo l u m e 4, No. 4 Quarterly Banking ProfileSecurities Portfolios Drive Growth in Industry AssetsTotal assets of insured institutions increased by $163 billion ( percent) during the Quarter . Notwithstand-ing the increase in reported assets in the first Quarter that reflected new financial reporting rules, this is the first real growth in industry assets since fourth Quarter 2008.

9 Interest-bearing assets increased by $ billion ( percent), as investment securities portfolios rose by $ billion ( percent). Assets held in trading accounts were up by $ billion ( percent). Reported loan balances declined for the eighth time in the past nine quarters. Total loans and leases fell by $ billion ( percent), as C&D loans declined by $ billion ( percent) and credit card balances and other loans to individuals fell by $ billion ( percent). Loans to depository institutions grew strongly during the Quarter , increasing by $ billion ( percent). C&I loans increased for the first time in eight quarters, rising by $ billion ( percent).

10 One-to-four family residential mortgages increased for the first time in six quarters, rising by $ billion ( percent). Unused loan commitments were up by $ billion ( percent). Indications of credit risk in industry assets continued to fall in the Third Quarter . The ratio of risk-weighted assets (used in calculating risk-based capital ratios) to total assets declined from percent to percent during the Quarter , as total risk-weighted assets increased by only $ billion ( percent). This is the lowest level for this ratio since first Quarter 1995. Lower Provisions Lead to a Fall in ReservesThe industry s reserves for loan losses declined for a second consecutive Quarter , falling by $ billion ( percent), as NCOs took $ billion out of reserves while loss provisions added only $ billion.